Quadra FNX Mining Ltd. Announces Record Revenues and Earnings for the Year Ended December 31, 2010
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/28/11 -- (All figures, except per share amounts, are in $US thousands unless otherwise stated or unless context requires otherwise)
Quadra FNX Mining Ltd. (the 'Company' or 'Quadra FNX') (TSX: QUX) is pleased to provide its fourth quarter and year end 2010 financial and operational results. The Company recorded 2010 earnings of $173 million or $1.11 per share (basic) compared to earnings of $81 million or $0.89 per share for the previous year. The increased earnings in the current year are primarily a result of higher average copper prices, and the increased earnings contribution from Franke and the Sudbury operations following the merger with FNX. Adjusted earnings totalled $225 million or $1.45 per share (basic) for the year.
In the fourth quarter of 2010 the Company recorded earnings of $58 million or $0.30 per share (basic). Unusual items included a $33 million leach pad inventory write down at the Carlota mine and a $22 million accounting loss on derivatives. Fourth quarter 2010 adjusted earnings totalled $105 million or $0.55 per share (basic).
Operating and Financial
Summary Three months ended Year ended
In millions of US dollars December December December December
(except per share data and 31, 31, 31, 31,
production data) 2010 2009 2010 2009
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Revenues 331.9 176.1 957.7 478.6
Adjusted earnings (1) 105.1 51.0 225.4 110.1
Adjusted earnings per share
(basic) $ 0.55 $ 0.51 $ 1.45 $ 1.22
EBITDA (2) 93.1 60.3 302.1 125.9
EBITDA per share (basic) $ 0.49 $ 0.61 $ 1.95 $ 1.40
Earnings for the period 57.9 46.5 172.5 80.5
Basic earnings per share $ 0.30 $ 0.47 $ 1.11 $ 0.89
Diluted earnings per share $ 0.30 $ 0.46 $ 1.10 $ 0.89
(1) Adjusted earnings is a non-GAAP financial measure and consists of net
earnings with adjustments made to exclude derivative losses, gain on
marketable securities and investments, merger costs, inventory write
down of at Carlota and tax related items.
(2) EBITDA is a non-GAAP financial measure which is defined as earnings
attributable to shareholders before interest expenses, income taxes,
depreciation, amortization and accretion
(3) Revenues and earnings from the former FNX operations are reported only
for the period commencing May 21, 2010 (the day after the closing of the
merger with FNX Mining Ltd.).
2010 AND FOURTH QUARTER HIGHLIGHTS:
On May 20, 2010 the Company completed a merger with FNX Mining Company Inc, and with this transaction, established a new, mid-cap Canadian mining company with considerable financial strength and a diverse asset base. The following financial information only includes the FNX operations since May 21, 1010 unless otherwise stated.
-- Production for the year was 224 million pounds of copper and 148
thousand ounces of total precious metals (TPMs). Cash costs for the year
were $1.57 per pound of copper. Production in the fourth quarter
totalled 57 million pounds of copper and 39 thousand ounces of TPMs
while cash costs were $1.55 per pound of copper.
-- In 2010 total revenues increased 100% to $958 million compared to $479
million in 2009 supported by an over 30% increase in the copper price,
which ended the year at $4.42 per pound.
-- 2010 earnings increased 114% to $173 million (or $1.11 per share basic)
from $81 million (or $0.89 per share basic) in 2009.
-- Operating income from the Robinson mine increased 36% to $193 million
from $143 million in 2009.
-- The Morrison deposit achieved commercial production on September 1, 2010
and produced 7.1 million pounds of payable copper in the fourth quarter
and 19 million pounds of payable copper for the year, exceeding
expectations.
-- The Sierra Gorda Financing Study approached completion as the Company
continued discussions with potential financial partners.
-- Exploration at the Victoria property resulted in the discovery of the
Zone 4 sulphide mineralized system. Drilling has continued to add
significant confidence and a Scoping Study is underway.
-- The Company ended the year with $320 million of cash and after year end
Quadra FNX sold its holding in Gold Wheaton for initial proceeds of
C$263 million, and contingent proceeds of C$30 million.
The Robinson Mine transitioned from the Veteran to the Ruth pit, and produced 109 million pounds of copper in concentrate for the year. The Morrison deposit delivered above plan and is expected to continue to increase production in both 2011 and 2012. Both the Franke and Carlota operations emerged at year-end with strategies that should improve on the 2010 results. Specifically, Carlota is transitioning to conveyor stacking while Franke is continuing to make progress on its ongoing optimisation programs.
Paul Blythe, President and CEO of Quadra FNX comments, 'In mid-2010 we successfully completed the merger with FNX. Since then our strong financial results have been driven by a much improved copper price environment as well as the increase in copper production from the combined Quadra and FNX asset base. In January 2011 we closed the sale of our Gold Wheaton shares for initial cash proceeds of C$263 million which increased our cash balance to approximately $600 million.'
'The internal Sierra Gorda Financing Study, which establishes the development parameters for the project, remains on track for completion by the end of the first quarter of 2011, with the NI 43-101 compliant Feasibility Study expected to be completed in the second quarter of 2011. Discussions with potential partners are ongoing and progressing well and we remain confident that a favourable partnership and financing structure will be in place by mid-2011. The environmental permit process (EIS) also remains on track for completion in June. In the meantime, we will continue to move the project forward in accordance with our 2014 start-up schedule, with our current focus on detailed engineering and mining equipment acquisition.'
Paul Blythe concludes; '2010 also saw the discovery of Zone 4 at Victoria, which we view as one of the most important discoveries in the Sudbury district in recent history. Our next step is to complete an inferred resource calculation which will be used in our ongoing Scoping Study. We are also advancing permitting, First Nations consultation and discussions with Vale on processing terms and their potential back-in right. Our intention is to commence shaft construction this year, initially for underground exploration, but ultimately this infrastructure could also be for future production.'
'This has been a pivotal year for our Company and, with the integration of Quadra and FNX essentially complete, we will focus on optimizing the performance of our existing asset base and on delivering growth.'
The complete financial statements and the MD&A will be available at www.quadrafnx.com and www.sedar.com.
This Management Discussion and Analysis ('MD&A') of Quadra FNX Mining Ltd. and its subsidiaries ('Quadra FNX' or the 'Company') has been prepared as at February 25, 2011 and is intended to be read in conjunction with the accompanying audited consolidated financial statements for the year ended December 31, 2010. This MD&A contains 'forward looking information' and reference to the cautionary statement at the end of this MD&A is advised. Additional information relating to the Company, including its Annual Information Form, is available on the SEDAR website at www.sedar.com. The Company is a reporting issuer in all provinces and territories of Canada and its common shares are traded on the Toronto Stock Exchange under the symbol: QUX.All financial information in this MD&A is prepared in accordance with the Canadian Generally Accepted Accounting Principles and all dollar amounts are expressed in millions of United States dollars unless otherwise indicated.
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Three months ended Year ended December
December 31 31
2010 2009 Change 2010 2009 Change
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FINANCIAL HIGHLIGHTS
Revenues 332 176 88% 958 479 100%
Operating income 113 63 79% 293 165 77%
EBITDA (1) 93.1 60.3 54% 302.1 125.9 140%
EBITDA per share (basic) 0.49 0.61 -19% 1.95 1.40 39%
Earnings for the period 57.9 46.5 25% 172.5 80.5 114%
Earnings per share (basic) 0.30 0.47 -35% 1.11 0.89 25%
Cash 319 133 139% 319 133 139%
Working capital 755 218 247% 755 218 247%
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(1) EBITDA is a non-GAAP measure which is defined as earnings attributable
to shareholders before interest expenses, income taxes, depreciation,
amortization and accretion.
Note: The financial results of FNX have been consolidated commencing May
21, 2010.
HIGHLIGHTS:
2010 Annual
-- On May 20, 2010 the Company completed a merger with FNX Mining Company
Inc, and with this transaction, established a new, mid-cap Canadian
mining company with considerable financial strength and a diverse asset
base.
-- Total revenues increased 100% to $958 million in the current year
compared to $479 million in 2009.
-- Earnings increased 114% to $172.5 million (or $1.11 per share basic)
from $80.5 million (or $0.89 per share basic) in 2009.
-- EBITDA increased 140% to $302 million from $126 million in 2009.
-- Costs were $1.57 per pound of copper for the year compared with $1.26
per pound in 2009.
-- Operating income from the Robinson mine increased 36% to $193.1 million
from $142.5 million in 2009.
-- Total production for the year was 224.3 million pounds of copper and
148.1 thousand ounces of TPMs.
-- The Morrison deposit achieved commercial production on September 1, 2010
and produced 18.5 million pounds of copper for the year, exceeding
expectations.
-- The Sierra Gorda Financing Study approached completion as the Company
continued discussions with potential financial partners.
-- On-going exploration at the Victoria property expanded and added
significant confidence in the Zone 4 sulphide mineralized system which
was first discovered in May 2010.
Fourth Quarter
-- Total revenues increased 88% to $332 million in the quarter compared to
$176 million in 2009.
-- Earnings increased 25% to $57.9 million, despite a $33.4 million write
down of Carlota leach pad inventory, compared to $46.5 million in 2009.
-- EBITDA increased 54% to $93.1 million from $60.3 million in 2009.
-- Operating income from the Robinson mine increased 20% to $62 million
compared to $51.8 million in 2009.
-- Total production for the quarter was 57.3 million pounds of copper and
38.7 thousand ounces of total precious metals (TPMs). Cash costs were
$1.55 per pound.
-- The ramp up of mining at Morrison continued during the quarter and
contributed 7.1 million pounds of copper and 4.1 thousand ounces of TPMs
in its first full quarter of commercial production
-- The Company ended the fourth quarter of 2010 with $319 million of cash.
-- In December 2010 the Company agreed to sell its shares in Gold Wheaton
for initial proceeds of C$263 million, and contingent proceeds of C$30
million. The initial transaction closed on January 5, 2011.
MERGER OF QUADRA AND FNX
On May 20, 2010, Quadra and FNX completed a merger of the two companies. The merger was structured as a court-approved plan of arrangement (the 'Transaction') under the Business Corporations Act (Ontario) pursuant to which Quadra acquired all of the issued and outstanding common shares of FNX. Under the terms of the Transaction, former shareholders of FNX received 0.87 common shares of Quadra and $0.0001 for each common share of FNX. Outstanding options and warrants to acquire FNX shares were converted into options and warrants to acquire Quadra shares, adjusted in accordance with the same exchange ratio. A total of 88.9 million common shares were issued to former FNX shareholders, and options and warrants to acquire 2.9 million and 6.5 million common shares, respectively were issued on conversion of FNX options and warrants.
Upon completion of the merger, existing Quadra and FNX shareholders owned approximately 52% and 48% of the combined company, respectively, on a fully diluted basis. The acquisition is accounted for as a business combination, and Quadra is considered to be the acquirer for accounting purposes. The total purchase consideration for accounting purposes is $980.2 million, based on the fair value of the issued common shares and other consideration as of May 20, 2010, the closing date of the merger. FNX's assets and liabilities have been re-measured at their individual fair values at the closing date of the merger and FNX's financial results have been consolidated commencing from May 21, 2010.
FINANCIAL PERFORMANCE
Earnings
The Company recorded earnings of $172.5 million or $1.11 per share (basic) for 2010 compared to $80.5 million or $0.89 per share (basic) for 2009. The increased earnings in the current year were primarily a result of higher average copper prices, the increased earnings contribution from Franke and the inclusion of the Sudbury operations following the merger with FNX. During 2010, the Company sold 224.6 million pounds of copper at an average price of $3.32/lb (excluding price adjustment impact) and 146.2 thousand ounces of TPMs compared to 144.7 million pounds of copper in 2009 at an average price of $2.60/lb (excluding price adjustment impact) and 95.7 thousand ounces of TPMs. 2010 earnings were also impacted by a $33.4 million write down of Carlota leach pad inventory (see 'Review of Operations and Projects'), a $34.0 million accounting loss on derivatives primarily related to future copper price participation in acid supply contracts, $7.2 million of FNX transaction costs and a $5.8 million unrealized gain on held for trading marketable securities (see 'General & administrative and other expenses'). 2010 earnings were also positively impacted by $13.5 million provisional price adjustment (see 'Revenues').
Revenues
To view the tables for Revenues for the year ended December 31, 2010 and the year ended December 31, 2009, please visit the following link: http://media3.marketwire.com/docs/qux228_table_01.pdf
Revenues are generated by the sale of copper concentrate, copper cathodes and copper and nickel ore. For the sale of copper concentrate and copper and nickel ore, revenues are generally recognized at the time of delivery to a customer based on metal prices at that time, however, under current sales contracts, final pricing for copper sold in concentrate and copper and nickel ore is generally fixed up to six months after the time of arrival of a shipment at the customer's port of delivery. As a result, the Company's revenues include estimated prices for sales, based on forward copper prices at year end, as well as pricing adjustments for sales that occurred in previous year, based on the actual price received and the price at year end for sales from previous years that were not settled in the year. The pricing of copper cathode sales is generally set in the month of shipment or one month after the time of shipment and therefore pricing adjustments in subsequent periods are minimal. Copper sales volumes are reported based on the volume of pounds actually paid for by the customer (payable pounds). Payable pounds at Robinson are generally 3-5% lower than the metal volume actually delivered, and the amount of the deduction varies depending on concentrate grade. Revenues from sales of Sudbury copper and nickel ores are recognized based on the payable metals that are estimates based on metallurgical testing and interim payment terms, neither of which is binding, final payment terms could differ from those reported.
Revenues in 2010 were significantly higher than 2009 due to higher sales volumes and copper prices. Copper spot prices increased from $3.33/lb at December 31, 2009 to $4.42/lb at December 31, 2010 resulting in significant positive pricing adjustments related to the settlement of sales from the prior periods. The increase in sales volumes in 2010 was a result of the merger with FNX as well as ramping up production at the Franke mine and Morrison deposit.
2010 revenues at the Morrison deposit, Levack Complex (excluding Morrison) and Podolsky also include non-cash revenue of $9.4 million for the amortization of a deferred revenue liability related to the Company's obligation to sell 50% of the gold, platinum and palladium contained in ore mined and shipped from certain deposits to Gold Wheaton Gold Corp. ('Gold Wheaton'). Pursuant to an agreement with Gold Wheaton dated July 15, 2008, the Company receives a cash payment equal to the lower of $400 per gold equivalent ounce (subject to a 1.0% annual inflationary adjustment commencing July 1, 2011) and the prevailing market price per ounce of gold, for each gold equivalent ounce sold to Gold Wheaton.
Operating expenses and operating income
To view the tables for Operating expenses and operating income for the year ended December 31, 2010 and the year ended December 31, 2009, please visit the following link: http://media3.marketwire.com/docs/qux228_table_02.pdf
Cost of sales in 2010 were higher compared to 2009 due primarily to the higher onsite costs (see 'Review of Operations and Projects') as well as higher sales volumes in the current year.
The existence of a high percentage of fines in the ore at the Carlota mine is affecting the production and recovery rates. It is now believed that a lower portion of the copper already on the leach pad will be recovered than was previously expected to be recoverable. As a result, the leach pad inventory at Carlota has been written down by $33.4 million to its net realizable value at December 31, 2010 (see 'Review of Operations and Projects').
Amortization, depletion, depreciation and accretion ('AD&D') were higher in 2010 than in 2009, mainly due to higher AD&D expense at the Franke mine as a result of achieving full year operation in 2010 and the additional AD&D expenses from Sudbury operations after the merger with FNX. Royalties and mineral taxes in 2010 were higher than 2009, mainly due to the higher copper prices and sales volumes in the current year.
Operating income increased in 2010 compared to 2009 primarily due to higher average copper prices and increased revenues from Franke which did not commence operations until the second half of 2009. Production from the Company's Sudbury operations also had a positive impact on the 2010 operating income. These factors were partially offset by higher onsite costs at Robinson and Carlota (see 'Review of Operations and Projects').
General & administrative and other expenses
General and administrative expenses for 2010 were $34.7 million compared to $18.5 million for 2009. The increased general and administrative expenses in the current year reflect the Company's increased activity level, increased payroll and severance costs as a result of the merger with FNX, as well as certain one-time business development activities during the first quarter of 2010. Stock- based compensation expenses for 2010 were $8.3 million compared to $6.8 million for 2009. This increase was due to additional grants of stock options and restricted share units in 2010.
In 2010 the Company recognized a loss of $34.0 million on derivatives primarily due to the increase in derivative liabilities associated with the Franke long-term supply contracts as a result of the increase in copper prices during the current year. The loss on derivatives in 2009 of $54.5 million primarily related to a decline in value of copper puts and collars (see 'Financial Instruments and Other Instruments'). The Company expensed transaction costs for the merger with FNX of $7.2 million in 2010.
Other income in the current year primarily resulted from the unrealized gain from the increase in fair value of held for trading marketable securities and the realized gain on sale of marketable securities. Other income in 2009 primarily related to an unrealized gain on held for trading marketable securities.
The Company recorded income tax expense of $47.2 million in 2010 compared to $11.7 million in the prior year. The tax expense for the current year has been recorded based on an annual effective tax rate of 22% (2009 - 24%). The decrease in effective tax rate in 2010 is mainly due to the utilization of U.S. Alternative Minimum Tax credits which were earned in prior years and the earnings from the Franke mine in Chile which has a lower statutory tax rate. Tax expense in 2010 also included a $2.0 million future income tax recovery related to the gain on marketable securities which has been recorded in other comprehensive income.
FOURTH QUARTER FINANCIAL PERFORMANCE
The following table summarizes the financial results of the most recent eight quarters (unaudited):
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SUMMARY OF QUARTERLY FINANCIAL RESULTS
2010 2009
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Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenues (i)
Robinson 132 130 95 133 136 74 84 103
Carlota 30 22 24 31 19 17 16 9
Franke 41 41 25 34 21 - - -
Podolsky 48 28 15 - - - - -
Levack Complex (1) 63 26 5 - - - - -
DMC 18 12 5 - - - - -
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Revenues - Total 332 259 169 197 176 91 100 112
Operating income 113.2 66.5 31.6 81.8 63.4 31.6 24.1 46.2
Earnings (loss) before
income taxes 70.1 46.4 25.3 69.0 45.6 21.2 (7.5) 32.8
Earnings (loss) 57.9 37.2 21.8 55.6 46.5 14.7 (7.3) 26.7
Basic earnings (loss) per
share $0.30 $0.20 $0.16 $0.56 $0.47 $0.16 -$0.08 $0.40
Diluted earnings (loss)
per share $0.30 $0.19 $0.15 $0.55 $0.46 $0.15 -$0.08 $0.40
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(1) Including Morrison deposit commercial production revenues
(i) See 'Financial Performance - Revenues' section for description of
payments process.
Earnings
The Company recorded earnings of $57.9 million or $0.30 per share (basic) for the fourth quarter of 2010, compared to $46.5 million or $0.47 per share (basic) for 2009. Fourth quarter earnings were impacted by a $33.4 million leach pad inventory write down at the Carlota mine (see 'Review of Operations and Projects') and a $22.0 million accounting loss on derivatives primarily related to future copper price participation in acid supply contracts. Fourth quarter earnings also included a positive $14.4 million price adjustment (see 'Revenues').
Revenue
Revenues in the fourth quarter of 2010 were higher than the same quarter of 2009 mainly due to the revenue contribution from Sudbury operations and higher copper prices. In the fourth quarter of 2010, copper prices increased from $3.65/lb at September 30, 2010 to $4.42/lb at December 31, 2010 resulting in positive pricing adjustments of $14.4 million related to the settlement of sales from the third quarter of 2010 and the revaluation of the current quarter shipments using an average copper price of $4.40/lb at December 31, 2010. 2010 revenues at the Morrison, Podolsky and Levack Complex (excluding Morrison) also include non-cash revenue of $4.1 million for the amortization of a deferred revenue liability related to Gold Wheaton.
At September 30, 2010, receivables at the Robinson mine included 12.8 million pounds of copper which has been provisionally valued at $3.65/lb. During the third quarter of 2010, these receivables were settled at an average final price of $3.79/lb. In the fourth quarter of 2010, Robinson shipped approximately 24.8 million pounds of copper at an average provisional price of $3.86/lb, of which 4.7 million pounds were settled during the quarter with an average final price of $4.15/lb. At December 31 2010, receivables at the Robinson mine and Sudbury operations include 31.5 million pounds of copper which has been provisionally valued at $4.40/lb.
Operating expenses and operating income
Operating expenses in the fourth quarter of 2010 were $218.7 million compared to $112.8 million in the same period of 2009 due primarily to the 40% increase in production, higher onsite costs (see 'Review of Operations and Projects') as well as operating expenses at the Sudbury operations after the merger with FNX. Operating expenses in the fourth quarter of 2010 were also impacted by a $33.4 million leach pad inventory write down at the Carlota mine (see 'Review of Operations and Projects'). Operating income increased by 79% in the fourth quarter of 2010 primarily due to higher average copper prices and increased revenues from the Company's Sudbury operations.
General & administrative and other expenses
General and administrative expenses for the fourth quarter of 2010 were $10.7 million compared to $6.0 million for the same quarter of 2009. The increased general and administrative expenses in the current quarter reflect the Company's increased activity level and payroll costs as a result of the merger with FNX. In the fourth quarter of 2010, the Company recognized a loss of $22.0 million on derivatives primarily due the increase in derivative liabilities associated with the Franke long-term supply contracts. The loss on derivatives in 2009 of $14.8 million related to a decline in value of copper puts and collars. In the fourth quarter of 2010, the Company recorded net interest and other expense of $8.0 million compared to net interest and other income of $4.2 million in 2009. Other expense in the current quarter was primarily related to the reversal of the gain on settlement of Gold Wheaton note receivable as a result of adjustments made to the value of the note in the purchase price allocation which was finalized in the quarter. Other income in the fourth quarter of 2009 primarily related to a realized gain on sale of marketable securities.
REVIEW OF OPERATIONS AND PROJECTS
(iii)Note: Production and operating statistics in this section are reported for historical periods for all of the Company's mines, including periods prior to the merger of Quadra and FNX. For accounting purposes, the financial results of the Sudbury Operations have been consolidated commencing from May 21, 2010, the date immediately following the closing date of the merger of Quadra and FNX.
Production for the quarter and year ended December 31, 2010 from the Company's operating mines is summarized as follows:
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Three months ended Year ended
December 31, 2010 December 31, 2010
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Copper production (Mlbs)
Robinson (3) 26.6 109.0
Carlota (4) 6.6 29.5
Franke (4) 7.8 37.2
Morrison deposit (2) (5) 7.1 18.5
Podolsky (5) 8.1 25.3
McCreedy West (5) 1.1 4.8
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57.3 224.3
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Nickel production (Mlbs)
Morrison deposit (2) (5) 1.5 4.5
Podolsky (5) 0.4 1.6
McCreedy West (5) 0.2 0.8
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2.1 6.9
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TPM (1) (kozs)
Robinson (3) 15.7 73.0
Morrison deposit (2) (5) 4.1 9.9
Podolsky (5) 10.6 32.8
McCreedy West (5) 8.3 32.4
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38.7 148.1
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(1) Total precious metal, including gold, platinum and palladium
(2) Including pre-production ore
(3) Produced in concentrate
(4) Produced in cathode
(5) Shipped payable metal
U.S OPERATIONS
Robinson (Nevada)
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Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
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Copper in concentrate
production (Mlbs) 26.6 29.3 109.0 122.5
Gold in concentrate
production (kozs) 15.7 25.1 73.0 99.0
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Ore mined (Mt) 3.3 2.8 14.0 14.5
Waste mined (Mt) 11.4 13.9 46.5 46.0
Ore milled (Mt) 3.5 3.4 13.7 13.5
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Copper grade (%) 0.46 0.59 0.49 0.64
Gold grade (g/t) 0.26 0.31 0.26 0.31
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Copper recovery (%) 75.4 65.9 74.1 63.6
Gold recovery (%) 53.3 73.1 64.8 73.0
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Cash cost per pound of
copper produced ($/lb) $1.80 $1.47 $1.50 $1.10
Capital expenditure $21.5 $8.8 $46.9 $39.2
Cost of sales $62.3 $66.1 $251.8 $209.7
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Operating income $62.0 $51.8 $193.0 $142.6
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In 2010, Robinson processed ore from both the Veteran and Ruth pits, producing 109 million pounds of copper and 73.0 thousand ounces of gold in concentrate. Both copper and gold productions in 2010 were lower than in 2009 due mainly to anticipated lower head grade in the Ruth pit ore and the impact of unexpected underground workings which affected production in the second quarter of 2010. Operating income increased 35% although overall grades mined were 23% below 2009 levels. Mining from the lower benches of the Veteran pit was completed in December 2010 and mining in the Wedge pit ended in the first half of 2010. Total material moved in 2010 was in line with 2009. Increasing prices enabled the Company to increase operating income despite the effect of reduced grades.
In the fourth quarter of 2010, Robinson processed ore from the Ruth pit, producing 26.6 million pounds of copper and 15.7 thousand ounces of gold in concentrate. Total material mined in fourth quarter of 2010 was lower than in 2009 due to longer haulage distances while December operating performance was impacted by the highest rainfall event since the 1890's (greater than 3'). Copper production in the fourth quarter of 2010 was lower than in 2009 due to lower head grade, partially offset by higher copper recoveries and higher milling rates of 41,600 tpd. Copper recoveries continued to benefit from the additional flotation capacity that was installed in the fourth quarter of 2009. In addition, revised contractual terms with concentrate customers provided Robinson more flexibility with respect to concentrate grade. Operating income increased 20% although overall grades mined were 16% below 2009 levels.
Gold production in the fourth quarter of 2010 was lower compared to the same quarter of 2009 due to lower head grades in the Ruth pit which in turn led to lower gold recoveries as expected.
Robinson cost of sales and capital expenditures
Cost of sales in 2010 was higher than 2009 mainly due to higher operating costs in the current year. Operating costs are comprised of onsite and offsite costs (see 'Non-GAAP Financial Measures'). Onsite costs include stripping costs and are primarily driven by the volume of waste and ore moved, payroll costs, supplies and equipment maintenance costs and royalties. Onsite costs in 2010 were higher than in 2009, primarily due to increased diesel fuel costs caused by increased diesel fuel usage, increased exploration expenses, increased dewatering expenses and increased maintenance supplies costs. Onsite costs for the fourth quarter of 2010 were higher than in the same quarter of 2009 primarily due to increased exploration drilling expenses, dewatering expenses and diesel fuel usage. Cost of sales for the fourth quarter of 2010 was slightly lower than 2009 due to lower sales volumes.
Offsite costs are primarily driven by smelting and refining charges, the volume of concentrate transported, and rail and ocean freight rates. Offsite costs for 2010 were slightly lower than in 2009 primarily due to lower smelting and refining costs.
The cash cost per pound of copper produced is a non-GAAP term and consists of onsite and offsite costs, less by-product revenue, divided by the pounds of copper produced in the period (see 'Non-GAAP Financial Measures'). The 2010 cash cost per pound of copper produced was $1.50 compared to $1.10 in 2009. The increased unit cost in 2010 is due to lower copper production and higher onsite costs.
In the fourth quarter of 2010 the cash cost per pound of copper produced was $1.80 compared to $1.47 in the same quarter of 2009. The increased unit cost in the fourth quarter of 2010 is due to lower copper production and higher onsite costs.
Capital expenditures at Robinson in 2010 were primarily related to Ruth pit mud removal, dewatering, district exploration, and legacy mitigation.
Carlota (Arizona)
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Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
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Copper cathode production
(Mlbs) 6.6 8.0 29.5 28.0
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Ore mined (Mt) 1.5 2.6 6.4 7.1
Waste mined (Mt) 5.6 3.7 21.3 17.9
Ore placed (Mt) 1.5 2.6 6.4 7.1
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Total copper grade (%) 0.67 0.61 0.59 0.45
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Cash cost per pound of
copper sold ($/lb) (1) $1.84 $1.61 $1.81 $1.79
Capital expenditure -$4.9 $9.5 $13.3 $26.7
Cost of sales $12.7 $9.3 $51.7 $43.9
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Operating (loss) income -$20.5 $7.1 $5.3 $18.2
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(1) In the quarter ended September 30, 2010 the Company changed its
calculation method of cash costs per pound for its heap leach operations to
conform to industry standards (see 'Non-GAAP' Financial Measures').
Total tonnes mined in 2010 were slightly higher than in 2009. Total tonnes mined in the fourth quarter of 2010 were higher than the same quarter of 2009 as emphasis was placed on waste stripping to open oxide ore along the Kelly Fault. Ore tonnes mined during the fourth quarter of 2010 were less than the same quarter of 2009 due to the transition from sulphide ore in the Cactus pit to oxide ore along the Kelly Fault. Copper production in the fourth quarter of 2010 was less than the same quarter of 2009 as a result of the slower leaching kinetics of sulphide ore stacked during the third and fourth quarters of 2010. In addition, in December, the SX-EW plant had upset conditions caused by a second significant storm event which temporarily reduced plant recovery.
During the second half of 2010 Carlota conducted a comprehensive study of issues which impact the performance of the leach pad. Studies determined that the high percentage of fines occurs throughout the leach pad and the orebody. Various actions to minimize the impact of the fines issue were examined, including agglomeration, blending, screening and stacking methods. The studies determined that stacking by conveyor provides a lower bulk density in the heaps and should produce improved and consistent percolation rates which should limit channelling, leading to improved copper recovery and production. Improvement to percolation rates and copper recoveries in the existing heaps are also being evaluated using drilling and solution injection into the stacked material. As a result of the fines and lower percolation rates management estimates that a lower portion of copper than previously estimated will be recovered from the leach pad, and the Carlota leach pad inventory has been written down by $33.4 million to its estimated net realizable value at December 31, 2010.
Carlota cost of sales and capital expenditures
In 2010 Carlota sold 5.3 million pounds or 24% more copper than 2009. Cost of sales in 2010, which exclude the leach pad inventory write down, were 18% higher than 2009 due to the higher sales volumes.
Cost of sales in the fourth quarter of 2010 were higher than the same period of 2009 due to the 20% increase in sales volumes.
Capital expenditures in 2010 were significantly lower than 2009 and primarily related to construction development of the Leach Pad Phase 2 and to the implementation of additional storm water control measures, but included an initial exploration program below the existing orebody.
US operations Outlook
Robinson Outlook
Overall, 2011 production at Robinson is expected to be back-end weighted contributing between 105 and 120 million pounds of payable copper and 45-50 thousand ounces of gold for the year.
In 2011 ore at the Robinson will be sourced from the Ruth pit and ore blending is expected to continue to the extent possible in the single pit operation. Typically, supergene ore types from higher elevations will be blended with ores from lower pit elevations. These blending efforts enable the operation to optimize recoveries of high grade ores, improve concentrate grades, reduce lime consumption and increase throughput. However, it is expected that the complex and variable nature of the Robinson ore body will continue to cause metal production variations from quarter to quarter and metallurgical performance is expected to continue to be highly variable throughout the life of the Ruth pit.
Ruth pit mud removal has ramped up to the required rate with the new contractor and 2011 production is not expected to be impacted. Pumping capacity and dewatering of the Ruth pit has also increased which has facilitated mud removal. Following a localised pit wall slump in January 2011, the Company has re-sequenced the mine plan and now expects to access higher grade ore in the second half of 2011. As the mining sequence transitions lower into the Ruth pit, more benches will become available and operating flexibility should improve later in the year.
Onsite costs are expected to be in line with 2010. Capital expenditures are expected to increase in 2011 mainly as a result of the removal of mud from the bottom of the Ruth Pit. This is expected to contribute an additional $15-$20 million in the capital expenditures in the first half of 2011.
In 2011 the Company has increased its exploration efforts in the Ruth pit and has also initiated an aggressive exploration and engineering program at the historical Liberty pit, located between the Veteran and the Ruth pits. While the evaluation of the Liberty area is still early stage, based on the work to date the Company believes that this historical pit could improve Robinson's medium term operating flexibility, and further enhance the longevity of operation. Exploration and engineering for potential mining in the Liberty Pit is ongoing.
Carlota Outlook
In 2010 Quadra FNX established that the high levels of fines identified in the Carlota orebody have resulted in a reduced percolation rate, and a broad range of studies to resolve the issue have been ongoing. Studies completed in the second half of 2010 determined that stacking by conveyor should provide a lower bulk density in the heaps. The mine will convert to conveyor stacking during the first quarter, using a contractor until the concept has been tested on a sustained basis.
In 2010 geotechnical drilling identified a potential stability concern in the highwall on the Kelly Fault side of the Cactus pit. The Company has taken these concerns seriously and, in the current mine plan, adjusted the highwall slope angles to ensure safety. This change has resulted in a 12 million tonnes reduction in resources (i.e., approximately 1.5 years of production). Additional work, including geotechnical drilling, mapping, drains, and a full technical review is planned in 2011 in order to fully evaluate the pit configuration.
Projected 2011 copper production remains between 30 and 35 million pounds. While injection processes are tested and changes to stacking methods are implemented production in the first quarter is expected to be in the range of 6-7 million pounds.
Total onsite costs at the Carlota Mine are expected to be in line with 2010. Capital expenditures are primarily related to the planned leach pad expansion. A new exploration program was initiated in late 2010 and the initial diamond drill holes indicate mineralization below the defined orebody and appear to confirm the revised genesis theory. Additional drilling is planned for 2011.
CHILE OPERATIONS
Franke
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Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
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Copper cathode production
(Mbs) 7.8 9.4 37.2 13.5
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Ore mined (Mt) 0.8 0.8 3.8 1.5
Waste mined (Mt) 1.6 0.6 4.9 2.1
Ore placed (Mt) 0.7 0.8 3.2 1.4
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Copper grade (%) 0.86 0.85 0.85 0.83
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Cash cost per pound of
copper sold ($/lb) (1) $2.60 $2.06 $2.45 $2.06
Capital expenditure $7.7 $5.0 $24.5 $25.7
Cost of sales $26.8 $14.2 $100.9 $14.2
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Operating income $9.2 $4.5 $20.5 $4.5
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(1) Company changed its calculation method of cash costs per pound for its
heap leach operations to conform with industry standards (see 'Non-GAAP'
Financial Measures').
Copper cathode production for 2010 totalled 37.2 million pounds compared to 13.5 million pounds in 2009. In the fourth quarter of 2010, a total of 7.8 million pounds of copper cathode were produced. The Franke mine commenced production in July 2009 and commercial operations in October 2009. There were 9.4 million pounds of cathode produced at Franke in the fourth quarter of 2009.
Despite the continuing improvement in the availability of the existing stacker, copper production declined during the fourth quarter as a result of short-term shutdowns required for capital projects and low crusher availability. Leach recoveries and pad permeability also lagged expectations, the permeability being affected by clays and by destruction of minerals in the high acid environment required to recover the copper from Franke ore. A number of process changes have been put in place to resolve these issues, including reducing heap height, customizing leach solution application rates and increasing acid cure for recovery. The new stacker, which was delivered in November, had a significant structural design defect which is being addressed.
Franke cost of sales and capital expenditures
Cost of sales at Franke is mainly driven by onsite costs and sales volumes. Onsite costs in 2010 were in line with the Company's expectations for copper placed on the leach pads with the exception of higher acid costs due to increased copper prices and higher power costs due to higher power consumption. Capital expenditures at Franke in 2010 primarily related to the construction of stockpile covers to control dust emissions, a change to the secondary crushing plant to improve crushing performance and tank construction for additional acid storage.
Franke Operations Outlook
The assembly and commissioning of the stacking equipment ordered in July has been delayed due to the structural failure. The manufacturer is reviewing the failure and proposed a new design in late January 2011. It is now expected that the earliest date for a workable new stacker to be in operation is mid-year. In the interim, the Company expects to sustain 85-90% of its nameplate stacking capacity with its existing equipment.
In January 2011, Marineer Zona Franca S.A. ('Marineer'), the local mining contractor at the Franke Mine in Chile, shut down all equipment at the site due to financial difficulties. The Company then made the decision to terminate the contact with Marineer and take over the mining operations at Franke. Quadra FNX has negotiated the take-over of the existing mining fleet from Komatsu, who held the lease and is in the process of recruiting operators. Franke currently has approximately two months of ore feed stockpiled at the site and does not expect the transition to owner mining to have a material impact on 2011 production.
To improve leach recovery and copper production, the Company has been adjusting the leach operating parameters, including reducing the lift height on the heap leach pad, crush size and tailoring solution application rates to individual ore types. Additional leach pad space is being developed to optimize recovery from slower-leaching ores.
The improved copper recovery expected from these changes are expected to offset the impact of the delay in the commissioning of the stacker and allow the operation to contribute between 35 and 45 million pounds of cathode copper in 2011. Copper production is expected to ramp up in the second half of the year benefiting from the transition to owner mining, the commissioning of the new stacking equipment and higher recoveries.
A portion of the employees at Franke formed a Union in late 2010 and negotiations on the terms of a new labour contract are ongoing. A final offer was submitted by Quadra FNX in mid-February, 2011 and the Union is considering their response.
Franke's 2011 acid supply has been fully contracted with approximately half of the required quantity provided under the existing long- term contract at a price dependent on copper price and the remainder at a fixed price. Major capital expenditures in 2011 include additional dust control on the processing equipment and the construction of additional leach pads.
The Company has multiple copper occurrences with ore grade intercepts within 3 to 5 kilometers of the Franke mine. The geological re-interpretation is going well and an aggressive exploration program is planned for the second half of 2011. Drilling of the China deposit has already commenced.
CANADIAN OPERATIONS
Morrison deposit
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Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
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Copper ore sold (kt) (1) 39.7 3.1 101.8 3.1
Copper grade (%) 9.5 8.2 9.4 8.2
Nickel ore sold (kt) (1) 4.0 4.5 18.5 11.4
Nickel grade (%) 3.2 3.1 2.9 2.7
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Copper sold - payable (Mlbs) 7.1 0.7 18.5 1.0
Nickel sold - payable (Mlbs) 1.5 0.3 4.5 0.6
Gold sold - payable (kozs) 0.7 0.1 1.4 0.1
Platinum sold - payable
(kozs) 1.0 0.2 2.4 0.2
Palladium sold - payable
(kozs) 2.4 0.5 6.0 0.7
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Cash cost per pound of
copper sold ($/lb) (2) -$0.34 - -$0.19 -
Capital expenditure (2) (3) $10.3 - $28.7 -
Cost of sales (2) $16.1 - $22.6 -
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Operating income (2) $30.9 - $32.7
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(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the day immediately after the
merger of Quadra and FNX
(3) Excluding pre-production revenue credits
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010. The Morrison deposit includes four successive zones MD1
(previously called the Rob's deposit) though MD4. In the first two months of
the third quarter of 2010, pre-production revenues from MD2 and MD3 were
recorded as a credit to the development cost of the Morrison deposit. The
above table includes pre-production and commercial production ore.
The Morrison deposit represents a high grade footwall deposit located in the lower part of the Levack mine. The Morrison deposit commenced commercial operations on September 1, 2010. In 2010 production from the Morrison deposit, including pre-production and the MD1 ore exceeded expectation, contributing 18.5 million pounds of payable copper, 9.8 thousand ounces of TPMs and 4.5 million pounds of payable nickel.
In 2010 selective mining methods were adopted allowing the mine to surpass its copper production expectations while mining a lesser amount of ore tonnes. Ramp and lateral development including drill platforms, secondary egress, ventilation and air, water and electrical infrastructure also continued to advance to below the 4000 Level.
In 2010 the Company advanced the rehabilitation of the #2 Shaft, as well as the 3600 Level loading pocket and related infrastructure. During 2010, access was also established to the neighbouring Craig Mine owned by Xstrata allowing for extra additional ventilation of workings in the Morrison deposit which will aid in the overall development of the mine. In late 2010, work started on a major maintenance shop facility on the 3900 Level, as well as a dewatering station. Commissioning of a new continuous feed mixing backfill plant was started in December 2010. The plant is on line and expected to be fully operational by the end of the quarter of 2011.
Morrison cost of sales and capital expenditures
Morrison achieved commercial production on September 1, 2010. Operating costs (onsite and offsite costs) prior to September 1, 2010 were capitalized. Operating costs in production were in line with expectations as additional costs related to more selective mining techniques were offset by lower haulage and processing costs.
Since commencing commercial production on September 1, 2010 the cash cost per pound of payable copper produced from Morrison averaged negative $0.19 as a result of the by-product metal credits, while cash costs during the fourth quarter of 2010 averaged negative $0.34.
Overall capital spending in 2010 was less than planned, because the upgrades to the mine dewatering system were delayed by weather and is now scheduled for completion in the first quarter of 2011.
Podolsky
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Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
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Copper ore sold (kt) (1) 118.0 167.5 415.4 315.6
Copper grade (%) 3.7 4.2 3.3 4.8
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Copper sold - payable (Mlbs) 8.1 13.0 25.3 28.2
Nickel sold - payable (Mlbs) 0.4 0.8 1.6 1.8
Gold sold - payable (kozs) 1.9 2.6 5.7 3.7
Platinum sold - payable
(kozs) 4.3 6.3 13.4 12.3
Palladium sold - payable
(kozs) 4.4 6.2 13.6 11.3
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Cash cost per pound of
copper sold ($/lb) (2) $0.74 - $0.83 -
Capital expenditure (2) $4.6 - $8.5 -
Cost of sales (2) $17.4 - $42.5 -
----------------------------------------------------------------------------
Operating income (2) $25.3 - $34.8 -
----------------------------------------------------------------------------
(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the date after the merger of
Quadra and FNX
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010.
Podolsky operating income for the period from May 21 to December 31, 2010 was $34.8 million. In calendar 2010 Podolsky mined a total of 415,000 tonnes at a grade of 3.3% copper contributing 25 million pounds of payable copper, 33 thousand ounces of TPMs and 1.6 million pounds of nickel. Ore tonnes mined increased versus the previous year, offsetting the impact of lower copper grade in the outer extent of the ore zone. In the fourth quarter of 2010, copper production was strong due to access to high grade stopes offsetting the impact of the ground control issues experienced in the third quarter of 2010.
Podolsky cost of sales and capital expenditures
Total operating costs for Podolsky in 2010 were above plan due to the higher throughput. Capital expenditures in 2010 were related to development work, diamond drilling and mobile equipment purchases.
McCreedy West
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper ore sold (kt) (1) 76.1 154.5 283.5 253.5
Copper grade (%) 0.8 1.1 0.9 1.2
----------------------------------------------------------------------------
Copper sold - payable (Mlbs) 1.1 3.3 4.8 5.9
Nickel sold - payable (Mlbs) 0.2 0.6 0.8 2.0
Gold sold - payable (kozs) 0.9 2.3 4.2 3.9
Platinum sold - payable
(kozs) 2.7 6.2 10.5 10.5
Palladium sold - payable
(kozs) 4.6 10.2 17.7 16.6
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Cash cost per pound of
copper sold ($/lb) (2) $1.55 - $1.59 -
Capital expenditure (2) $5.6 - $10.0 -
Cost of sales (2) $8.5 - $22.2 -
Operating income (2) $5.3 - $4.6 -
----------------------------------------------------------------------------
(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the date after the merger of
Quadra and FNX
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010.
The Levack Complex is comprised of two adjacent mining operations, McCreedy West and Levack, which includes the Morrison deposit. McCreedy West operating income for the period from May 21 to December 31, 2010 was $4.6 million. In calendar 2010 production at the McCreedy West mine was limited to the PM zone and the 700 Complex footwall orebodies. Throughput of 283,000 tonnes in 2010 exceeded expectations and the operation surpassed its metal copper and TPM production targets for the year. Contact Nickel ore production was not undertaken in 2010 due to unfavourable metal prices and processing terms.
McCreedy West cost of sales and capital expenditures
Total operating costs for McCreedy West in 2010 were higher than planned. The higher total costs were due to the higher than planned production tonnes. Capital expenditures in 2010 were related to development work, diamond drilling and mobile equipment purchases.
Canadian Operations Outlook
Morrison deposit
The Company expects 2011 production from Morrison to range between 30 and 40 million pounds of payable copper, approximately 20-25 thousand ounces of payable TPMs and approximately 5 million pounds of payable nickel. Quadra FNX's ability to attain the upper end of the production range is mainly dependent on maximizing utilization of the internal ramp system and the successful commissioning of the backfill plant. Production is expected to continue to increase through 2011 and into 2012. Work continues on the rehabilitation of the Levack #2 shaft to the 3600 Level and conditions have proven more challenging than expected, but the Company expects during 2011 to resolve the access issues with no material affect on the 2011 production profile. Additional haul truck capacity is expected to allow continued improvement in the ore production rate until the #2 Shaft is fully serviceable. Completion of the shaft rehabilitation is expected to allow the annual production rate to be increased to over 45 million payable pounds of copper.
In 2011 exploration efforts will focus on drilling and expanding the known resource below the 4200 Level. The Morrison deposit remains open at depth, with limited drilling information is available below the 5200 Level. In 2011 onsite and offsite costs at Morrison are expected to be in the $70 to $80 million range. In addition, the Company expects to spend approximately $50 million for further development of the Morrison depos